It is always a pleasure to be with you, but especially here in
Atlanta, a city that, through hard work and vision, literally rose
from ashes to become an economic pacesetter. For more than a
century, the people of Atlanta -- developers and bankers,
merchants and newspaper editors, business executives and
government officials, as well as many others -- have earned a well-
deserved reputation for working together as partners in the city's
growth. They recognized they had common problems and they
sought common solutions. They took a clearing in the piney
woods where an Army engineer drove a stake in 1836 and by 1881
they hosted Atlanta's first World's Fair -- setting out for all to see
what had been accomplished in commerce and industry. Over the
next century, the modern city of Atlanta grew into a transportation
hub, a focus of retail trade, a medical and educational center, the
financial capital of the Southeast, a communications giant, and
home to leaders of the civil rights movement as well as to the 1996
Olympics.

The history of Atlanta is the story of renewal -- of
overcoming a tragic past and creating a better future -- through
unity of purpose. That story holds a lesson for all of us.

In the last year, America's Community Bankers has
achieved a number of its important legislative goals in
Washington. Some of the weight of regulation has been lifted and
a complicated tax problem has been resolved, but, most
importantly, after more than two years of hard work and several
detours along the way, a law was enacted to address the serious
problems of the Savings Association Insurance Fund (SAIF).
Many of you here today personally devoted time and effort to
educating the public and lawmakers on the need to address the
problems of the SAIF -- and most of you are among the institutions
that together will pay $4.5 billion to capitalize it. I want to thank
you for working with the FDIC and other regulators, the Congress
and other financial institutions and trade associations to achieve
this very important goal.

Those of you whose institutions are insured by the SAIF
are the immediate beneficiaries of the newly-sound fund. You are
not the only beneficiaries, however. The SAIF's problems were
not only an issue of interest to the FDIC as insurer of all banks and
thrifts in this country and to SAIF-member institutions, the SAIF's
problems, in fact, were a matter of importance to the entire
financial system and to the nation. In the end, many participants in
the financial system worked together to find a constructive solution
to a problem that no financial institution operating today created,
and from whose ill effects everyone would have suffered.

The SAIF's problems were a national issue for one reason:
Banking rests on public confidence and public confidence rests on
the soundness of the two FDIC insurance funds. As I said to you at
your annual convention last year, confidence in government's
backing for the safety net was a major reason that the financial
troubles of the 1980s and early 1990s did not lead to widespread
panic and economic disarray. Deposit insurance is essential to the
fabric of that safety net. The failure of the SAIF would have
undermined the confidence Americans have in the FDIC as a
source of stability for the financial system and would have called
into question the government safety net for financial institutions.
Deposit insurance is one of the few certainties in an uncertain
financial world -- a certainty that stabilizes the American financial
system and our economy. Had the public come to doubt that
certainty, the effect could have spread throughout the financial
system.

The problems of the SAIF reminded all of us that every
element of the financial system is linked -- directly or indirectly --
to every other element in the system. It will be critical for all of us
to keep this linkage in mind while considering a new banking
charter, which the Deposit Insurance Funds Act of 1996 sets as the
next significant area for legislative consideration. Like an
architect, we must concern ourselves with the environment in
which a structure will be placed, as well as with the details of its
design. The resulting product will be judged by whether it
effectively functions as an element of the financial system that
benefits the marketplace.

Today I would like to talk with you about four issues that
pertain to a new banking charter: one, the merger of the two
insurance funds; two, new powers for banks; three, access to credit
services; and, four, deposit insurance.

Turning to the first issue, why is a merger of the two funds
needed? While the SAIF will soon be fully capitalized and
structurally sound, the deposit insurance system even then will not
be as strong as it could be.

Almost 10,000 institutions are members of the Bank
Insurance Fund (BIF), while fewer than 1,700 are members of the
SAIF. Just in terms of numbers, the far smaller SAIF is less
actuarially sound than the larger BIF. In addition, thrift institutions
that are SAIF members are more concentrated in product line --
typically, mortgage lending -- than are BIF members. These same
institutions are also more concentrated geographically, with the
eight largest SAIF-insured institutions operating predominantly in
California and together holding almost 20 percent of all SAIF-insured
deposits.

A merger of the SAIF and the BIF -- which is anticipated in
the new legislation to capitalize the SAIF -- would resolve all of
these remaining issues and would make the deposit insurance
system as a whole even stronger. The legislation, in effect,
establishes a new bank charter as a condition for the merger of the
two funds. It is imperative, therefore, that we work together
expeditiously to resolve the chartering issues so we can achieve a
merger of the two insurance funds as soon as possible. A merger
of the two funds is the best way to assure the soundness of the
deposit insurance system going into the twenty-first century.

The impetus for a common charter is obvious: the thrift
charter no longer serves its special purpose of assuring a particular
source of finance for the housing industry. At the end of 1995,
thrifts held about 13 percent of home mortgages outstanding, down
from the more than 50 percent held in 1980. In the last 15 years,
commercial banks picked up much of the difference. In addition,
the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation have grown into powerhouses for
funding home mortgages -- they have channeled almost $1 trillion
of home mortgages into mortgage-backed securities and they hold
another $361 billion in their own portfolios. Indeed, one of the
business sessions on this convention's program is titled: "Is There
a Future in Home Mortgage Finance?" Moreover, various aspects
of the thrift charter have come to be seen by many as competitive
disadvantages because certain restrictions on thrift activities
hamper the ability of thrift institutions to respond to changes in the
marketplace.

There are a number of large questions that must be
resolved, however, before a new bank charter can be created. What
should be the fundamental attributes of the new, merged charter?
What should be the range of services offered in financial activities?
Should the new bank charter permit new products that are
economic equivalents of loans? Should there be a place for state-
chartered savings institutions? As to the last question, some
people have asked whether the mutual form of ownership should
be allowed to continue. Mutuals have been a part of the financial
system of this country since the early nineteenth century. Taking
away the right of states to permit mutual charters would strike a
serious blow to the continued vitality of the dual banking system.

The second area of concern I want to talk about today is
one of the large questions that must be resolved: how to determine
the powers that banks should have under a new charter.

Historically, banking powers were explicitly granted -- or
prohibited -- by legislature or regulator and the decision was
generally tied to a prudential judgment of whether the risk from the
activity was appropriate for banking. Based on such a judgment,
for example, national banks were prohibited from real estate
lending for many years. This static approach to bank powers,
however, has lost credibility in recent years as technological
innovations have led to greater competition between depository
and nondepository financial services providers. For almost ten
years, the FDIC has held the view that the maintenance of a
healthy and viable banking industry requires that the industry
generate sufficient returns to attract new capital in support of
normal growth and expansion into new areas. To achieve these
goals, banks must have the ability to compete on an equitable basis
with other business enterprises and their businesses must be
permitted to evolve with the marketplace as long as safety and
soundness concerns do not arise.

Rather than having to rely on a static list of approved
activities, banks should be allowed to structure their businesses
under a set of criteria that allow them to compete, while still
meeting public policy goals incorporated in statutory and
prudential standards. For these reasons, almost two years ago I
testified before Congress that the FDIC has long supported repeal
of Glass-Steagall restrictions on the securities activities of banking
organizations, provided that the repeal is accompanied with
appropriate protections for the deposit insurance funds. Under a
new bank charter, criteria for new powers should balance both the
necessity for competitive equity and the furtherance of public
policy goals.

One such public policy goal is the third area of concern I
want to talk with you about today -- providing everyone in
America with access to credit services. Banks are chartered by
governments to meet the convenience and needs of the public. In
return, banks are granted special rights -- access to the payments
system and federal deposit insurance, to name two. The great
debate in the history of American banking -- whether banks should
be chartered and supervised by state or federal authorities --
revolved around the concern that federally-chartered entities -- the
First and Second Banks of the United States -- were not providing
access to credit to all Americans. Their charters were allowed to
lapse, and state banks -- because they were thought to be more
open to the banking needs of their local communities -- became the
dominant force in American finance for decades.

A new banking charter would carry the expectation that
institutions meet the convenience and needs of the public. If the
new charter includes a significant expansion of new activities, it
raises the possibility that insured institutions might move away
from providing traditional banking services in order to expand into
these new activities. As part of our effort to design a new bank
charter, we have to consider the potential effect on small
communities, isolated markets, and existing bank customers.
While I believe that the marketplace will generally adjust to fill the
needs of underserved markets, there can be anomalies that prevent
the efficient functioning of the market -- and sometimes statutes
may advertently or inadvertently create such anomalies. We need
to try to avoid that result if everyone in the country is to have
access to necessary banking services.

The fourth -- and final -- area of concern I want to talk with
you about today is how deposit insurance would fit into a new
design for banking. As I noted earlier, every element in the
financial system is linked to every other element. A failure of the
thrift insurance fund would have affected commercial banks
directly or indirectly -- directly through the more than 44 percent
of SAIF deposits that were held by banking organizations -- and
indirectly by the loss of public confidence in the deposit insurance
system. The deposit insurance system is also an element of the
financial system and is affected directly and indirectly by what
insured institutions do -- for example, diversification of products
would, logically, strengthen the banking industry and would,
therefore, lessen the risk exposure of the insurance funds.

Along with the concept of the lender of last resort, deposit
insurance is one of the great advances in banking supervision that
stabilized an inherently unstable banking system. Before federal
deposit insurance was created in 1933, banking and the economy
suffered periodic turmoil -- runs, panics, bank failures, and general
economic contractions. Depositors knew that their deposits were
not backed by liquid assets. Once a run began, the only way to be
certain that one could get all of one's money was to be one of the
first to withdraw funds before the bank failed. In this way, if a
large enough proportion of a bank's depositors believed a bank
would fail, it did, even if the bank had been solvent before the run
began. In the banking panic of the early 1930s, more than one-fifth
of U.S. commercial banks closed their doors.

Federal deposit insurance solved the problem of bank runs.
With deposit insurance, depositors had no reason to panic when
problems surfaced at other banks -- or even when problems
surfaced at their own. One way to judge the value of deposit
insurance is the fact that three generations of Americans have lived
without knowing the significant economic contractions that
followed bank runs and panics in the past.

Deposit insurance was a great advance, but as in the case of
other forms of insurance, it creates a moral hazard problem -- the
moral hazard that insured institutions may take more risks than
they otherwise would, because insured depositors no longer have
an incentive to monitor and discipline banks. Deposit insurance
can create incentives for managers to reason "heads I win, tails
someone else loses" when they are making high risk/high return
investments. If the risk pays off in higher yields, the institution
wins, but if it creates losses, the insurance fund loses. Historically
the moral hazard problem created by federal deposit insurance was
thought to be mitigated by banking regulation and supervision and
by insulating banks from competition -- hence the low number of
bank and thrift failures for almost 50 years following the creation
of the deposit insurance system. Then came the 1980s.

There is little doubt that during the savings and loan crisis
inadequately capitalized thrifts took excessive risks, adding greatly
to the costs of the crisis. Without effective supervision, deposit
insurance can simply become a public resource that risk takers can
exploit. Our objective must be to strike a balance that minimizes
the moral hazard of deposit insurance, while providing stability to
the banking system. To address the problem of moral hazard and
discourage risky behavior, in the past few years we have instituted
a number of reforms, including higher minimum capital standards,
risk-related insurance premiums, and the least-cost test for
resolving bank failures.

Because deposit insurance creates distortions in the market,
an important consideration in our deliberations on a new bank
charter is the balance between expanding the opportunities
available to depository institutions on the one hand and limiting the
scope of the deposit insurance safety net on the other. To be
worthwhile, a new charter must provide banks with sufficient
flexibility to meet the needs of their customers and to compete
effectively in the rapidly evolving financial services industry. It is
important, however, to avoid extending federal deposit insurance
protection -- and the distortions it creates, such as the moral hazard
problem, as well as the related subsidy -- to nonbanking activities
that are better left to market discipline.

As I said two years ago in calling for the elimination of
Glass-Steagall limitations on securities activities by banks,
securities markets in the United States are dynamic and innovative;
they have expanded the growth potential of our economy and have
become the envy of the world. Our securities markets do not need
the backing of the deposit insurance guarantee, nor do they need
the added requirements of bank regulation that come with it. The
reality of functional regulation means that it is necessary to
separate the insured entity from the securities units of the banking
firm.

One way to do this would be to house such activities -- and
others where extending insurance coverage would be inappropriate
-- in an affiliate or subsidiary of the bank, rather than in the bank
itself. Another approach is to create affiliations and subsidiaries
under the bank holding company umbrella. There are advantages
and disadvantages to both models. I believe that banks should be
able to choose the corporate structure that is the most efficient for
them, as long as safety and soundness concerns for the insured
bank can be mitigated and as long as access to the safety net does
not provide a material subsidy to activities that cannot be
appropriately characterized as banking in nature. A similar point
applies to the related issue of functional regulation -- it makes
sense as long as the supervisory system is seamless and effective --
by that I mean, as long as there are no cracks through which
problems could fall.

If you were to step out of this hotel onto Peachtree Street in
the rain, the water you would see running off to the west side of the
street would be destined for the Gulf of Mexico, while the water
running off to the east would be headed for the Atlantic Ocean.
Just as Atlanta is at a watershed, so, too, is banking today. The
line runs between a past characterized by specialization,
segmentation and isolation, and a future that holds out the promise
of greater equity and freedom to compete. Many questions must
be answered before that promise is realized.

Making that promise a reality will require the right answers
to those questions -- answers that serve the needs not only of all
insured institutions but also the needs of all Americans. Making
that promise a reality will require all of us to recognize how
closely the elements of the financial system are linked -- that all of
us are in this together and that what affects one of us affects all of
us. Making that promise a reality will require us to share a vision
of the future and to work toward it together.

Generations ago, the people of Atlanta looked around and
saw a city in ruin. Fortunately, they saw more -- they saw that they
had the opportunity to prosper if they worked together. Banking,
today, has the opportunity for making real advances -- advances
that would benefit all Americans. To take advantage of the
opportunity, everyone involved in the banking system must take a
lesson from the history of Atlanta and work together to achieve the
goal we all share -- our goal of a more competitive banking system
in which institutions can grow and prosper by serving the needs of
the American people.